Forums / Property Investing / Value Adding / Whats it take to be a developer?

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  • Profile photo of grossrealisationgrossrealisation
    Member
    @grossrealisation
    Join Date: 2005
    Post Count: 1,031

    hi all
    developing is not a case of buying
    1.
    a block of land ,
    getting a loan for the land.
    exchanging on the land finding a lender for the build and then getting mezzinene finance to complete.
    developing is
    2.
    finding a site
    holding the site either or (option, caveat,5% deposit or less,)costing the construction with the help of (broker, lender, builder, solicitor and accountant if need be)but all cost must be calculated.
    value the end product ( real estate)
    work out profit margin, calculate in contingencys
    once this is done then get the bank to lend the land and construct ( banks hate it but get the formation correct from the start).
    when you have the approval in your hand then exchange on the land.
    mine is similar to above just a little more creative but this is a minimum structure.
    with number 1 you will lose, the cost blow out and you don’t or can’t find the money and the lenders like to see a floundering customers because they need money.
    The best time to get money is when you don’t need it.
    with number 2 if the figure don’t stack up you lose max 5% but if creative you only lose time.
    I get lots of project but only do the ones that hopefully make money.
    so far they have.
    As the name says this is developing not wishfull thinking, gambling, tossing a coin.
    I have taken the good part of 3 weeks on the current project just doing my due diligences and haven’t even got to the calculation of return.
    resiwealth is correct it risk against return.
    This market place requires alot of work and it not just the building side that is only half.
    I will give you a couple of examples that you can’t factor in.
    1. (ohs) inspector drive past your site in nsw.
    A.$5k fine for no helment for each worker to the builder/developer
    B.emergency and occupation folder not in it correct place( nobody could find it) $5k builder/developer
    c.caps on exposed steel no enough $5k builder/ developer
    d.uneven scaffold and not correctly fixed $5k
    and the rest.
    This might seem excessive I can tell you we just paid this bill and it came to a total of 55k and is billed to the developer.
    if we don’t complete with in the time the bank has organise the interest for
    you could be on 8% interest but if you run out of time the interest jumps to 14% on a total cost of 6.7mil for us.
    The contingencies is there for the cost unforseen problems.

    here to help

    Profile photo of roborobo
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    @robo
    Join Date: 2003
    Post Count: 155

    Hi Gross,
    What about if you are doing house and land package, ie you own land and contract a builder, can they impose those fines on you or builder.
    good old work cover guess you just paid someones wage for the year. No wonder building costs keep goig up won’t be long you won’t be able to get a builder to build you a dog kennel.
    Rob
    ps if you put down a holding deposit subject to building and finance costs wouldn’t you get your deposit back if you don’t exchange?

    Profile photo of grossrealisationgrossrealisation
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    @grossrealisation
    Join Date: 2005
    Post Count: 1,031

    hi robo
    fines are fixed does matter the size of the project.
    the builder should carry the cost we are builder and developers under my system.
    If you haven’t exchanged yes as the money has not and can’t be deposited until exchange so what I do is leave the real estate with a nice cheque 10k (holding 2 sites currently with two 10k cheques) but it can’t go any where until exchange so yes if the finance falls thru you cancel the cheque.
    If you exchange and have subject to finance on the contract.
    no you don’t get the deposit back as the vendor can get you finance at 14% interest rate.

    here to help

    Profile photo of wealth4life.comwealth4life.com
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    @wealth4life.com
    Join Date: 2003
    Post Count: 1,256

    So the answer to the question is “its bloooy scary being a developer and hopefully with a little luck and good profit we can sell them quickly and make a profit $$$$$$$$$$$

    resiwealth

    Profile photo of grossrealisationgrossrealisation
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    @grossrealisation
    Join Date: 2005
    Post Count: 1,031

    yep
    I have the letter of offer on the project above and still haven’t done my due diligencies.
    getting money is not difficult,
    making money thats a different question.

    here to help

    Profile photo of wealth4life.comwealth4life.com
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    @wealth4life.com
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    Making money = good luck + good timing [cigar]

    Profile photo of MiniMogulMiniMogul
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    @minimogul
    Join Date: 2002
    Post Count: 1,414


    Its been said that successful property developers are a bit like movie producers. They assemble a highly talented team of people and skillfully lead them to develop a profitable outcome. “

    As an executive producer I can so relate to that!
    problem plus solution equals profit.

    So there was a day about a year ago when I was ‘not a developer’ and then a day where I was, and ‘became a developer’. The difference was, I decided to do it. It’s just a matter of…well, a million questions you need to find the answer to, basically a whole lot of ‘what if’s.

    My first development was to build a couple of townhouses on bare land, my second was a CBD 3 lot subdivision with existing structures on it,and my third one is a 22 lot subdivision that we will either sell as sections, or offer house and land packages – still working that out.

    As with any ‘quest’ or mission, you just start at the beginning and find stuff out, a lot of it before you even go unconditional and buy the land, you should have a fair enough idea if what you plan is viable, just on some ball park numbers (i.e. a per square meter land cost in that town, a per square meter building cost that you know you can achieve worst case.)

    The work you do on from that (once unconditional) is a lot of number crunching, networking, team building, stick-shaking, and in fact every human personality or character trait you have, everything you have ever learned in your previous or other careers, will come out during the process (in a good way.)

    I kinda can’t believe that I am onto my third development already, I haven’t started writing occupation: property developer on my immigration forms yet, but really for me the thing was ‘just start doing it’. If you are a good investor, problem solver, executive producer, business person, it is likely you will have the right skills to apply to developing, which is a bit like investing, but a more advanced version.

    nothing you can’t handle. Just make sure you think of everything that can go wrong. if you are still Okay with it, then proceed!

    cheers-
    Mini

    Profile photo of kenkoh2000kenkoh2000
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    @kenkoh2000
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    Post Count: 103
    Originally posted by resiwealth:

    My 2 cents worth is Good luck and good timing.

    I have been developing for a long time as well and have seen the best of them get wiped out from bad luck and bad timing, more so than their own mistakes.

    A mate of mine lost 35 million because the market changed fro no fault of his own.

    I went through 19.33% interest rates (that builds character – not) could you?

    How about a Gulf war in the early 90’s and the property market just stopped

    What about the Paul Keeting recession we had to have, who planned for that in their budget with the finance company funding your development project.

    How about a pilot strike and sitting in Brisbane airport with the number 2 of Mitsubishi Corp Japan on a 15 million deal in North QLD (welcome to Australia) thanks a lot and we lost the deal – my fault – not.

    So “developing made easy” get real guys/gals the truth is there is no easy – just good luck and good timing and you hope and pray some out side influence doesn’t stuff you up. Ask Keith Williams how he lost Hamilton Island to Citibank, he had a $400,000,000.00 portfolio.

    Prophets – reno experts – gurus – are all great while the market is reasonabally stable but tip the table and watch out. What would you do if the interest rates changed to 12% in the next 6 months – won’t happen? what if it did?

    Yes i am still developing – renovating – and anything else that looks like making a profit – BUT my experience is that it can change without warning, so good luck to you all and welcome to my world ahhhhhhhhhhhhhhhhhhhhhhhhhhh!!!

    resiwealth … Phil (still positive and making money – i’m selling my SL500 merc 74k/m midnight blue if u r interested)[weird]

    ++++++++++++++++++++++++++++
    Dear Resiwealth,

    1. I must say that you are indeed very rich in experiences and “toughly-tested” and a very wise developer indeed.

    2. What will be some precious gems which you can care to share with the new novice developers in the forum, briefly in summary form, please?

    3. Looking forward to hearing and learning from you again soon.

    4. Thank you.

    regards,
    Kenneth KOH

    Profile photo of kenkoh2000kenkoh2000
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    @kenkoh2000
    Join Date: 2003
    Post Count: 103
    Originally posted by MiniMogul:


    Its been said that successful property developers are a bit like movie producers. They assemble a highly talented team of people and skillfully lead them to develop a profitable outcome. “

    As an executive producer I can so relate to that!
    problem plus solution equals profit.

    So there was a day about a year ago when I was ‘not a developer’ and then a day where I was, and ‘became a developer’. The difference was, I decided to do it. It’s just a matter of…well, a million questions you need to find the answer to, basically a whole lot of ‘what if’s.

    My first development was to build a couple of townhouses on bare land, my second was a CBD 3 lot subdivision with existing structures on it,and my third one is a 22 lot subdivision that we will either sell as sections, or offer house and land packages – still working that out.

    As with any ‘quest’ or mission, you just start at the beginning and find stuff out, a lot of it before you even go unconditional and buy the land, you should have a fair enough idea if what you plan is viable, just on some ball park numbers (i.e. a per square meter land cost in that town, a per square meter building cost that you know you can achieve worst case.)

    The work you do on from that (once unconditional) is a lot of number crunching, networking, team building, stick-shaking, and in fact every human personality or character trait you have, everything you have ever learned in your previous or other careers, will come out during the process (in a good way.)

    I kinda can’t believe that I am onto my third development already, I haven’t started writing occupation: property developer on my immigration forms yet, but really for me the thing was ‘just start doing it’. If you are a good investor, problem solver, executive producer, business person, it is likely you will have the right skills to apply to developing, which is a bit like investing, but a more advanced version.

    nothing you can’t handle. Just make sure you think of everything that can go wrong. if you are still Okay with it, then proceed!

    cheers-
    Mini

    ****************************************
    Dear Mini-Mogul,

    1. What would be some of key learning points and lessons which you will like to share with us, given your past and present property development
    experiences

    2. Thanking you in advance, please.

    3. Thank you.

    regards,
    Kenneth KOH

    Profile photo of kenkoh2000kenkoh2000
    Member
    @kenkoh2000
    Join Date: 2003
    Post Count: 103
    Originally posted by MichaelYardney:

    Originally posted by AmandaBS:

    I agree walk before you run.
    Start by subdividing 1 into 2 and learn the process and develop a relationship with Council, Engineers, Surveyors etc.
    We are finding the interest a real squeeze on land we’re subdividing (1 into 7). The DA still not through after 10 months.

    That’s a great point Amanda- start small. You will learn 80% of what you need to know about developing in your first 2 or 3 projects.

    Make sure you can survive these so you can get to your 4th project

    Michael Yardney
    METROPOLE PROPERTIES
    Author of Australia’s leading property e-magazine.
    Join over 10,000 readers each month.
    FREE subscription http://www.metropole.com.au

    ++++++++++++++++++++++++++++++
    Dear Michael and Amanda,

    1. Very well said indeed.

    2. Thanks.

    regards,
    Kenneth KOH

    Profile photo of kenkoh2000kenkoh2000
    Member
    @kenkoh2000
    Join Date: 2003
    Post Count: 103
    Originally posted by kattan:

    and have accesss to a lot more money than you think you will need

    very valid comment.

    Life’s little surprises are always around the corner and these ******** have a habit of coming and biting you when you have spent your last cent.

    For my current Project [upmarket T/House in Melb Inner City Suburb]I have paid off for the Land (with Permit). Fixed price building Contract has been signed. Construction Loan should get approved in a weeks time.

    Guess what? I am still going to the Market to borrow an additional 50k (@~20%interest) for the final few months of Construction as a contingency.

    Crazy? Not really; I’ll Probably pay 5k as interest over 6 months[treat it as part of Project Cost] and hopefully will not touch the additional Funds.

    But it provides me with some protection against those nasty little surprises and enables me to finish the project successfully.

    Trust me! I’ve been on the other side when you are forced to make some poor decisions at the end of the Project just because you are short by a few Ks; NOT FUNNY.

    Kattan

    +++++++++++++++++++++++++++++++++
    Dear Michael and Kattan,

    1. Well said. I agree with your views.

    2. Prevention is better than a cure. “Over-borrowing” is better than “under-borrowing” when we are doing property development, in view of some last minute unforseen contingencies, which can occur quite frequently at times for an inexperienced developer.

    3. Thus, Safety comes first before Efficiency, in property development considerations.

    4. Let us be “pound-wise and penny-foolish”, instead putting the entire project at risk as a result of we being caught in being “penny-wise, pound-foolish” position;- when we cannot afford to be both equally “pound-wise and penny-wise” at the same time despite we can all aspire to and no matter how hard we try to be.

    5. For your kind update and re-affirmation, please.

    6. Thank you.

    regards,
    Kenneth KOH

    Profile photo of MiniMogulMiniMogul
    Participant
    @minimogul
    Join Date: 2002
    Post Count: 1,414

    “1. What would be some of key learning points and lessons which you will like to share with us, given your past and present property development
    experiences”

    hi kenneth

    Well if you learn 80 percent of your lessons on the first three developments, then as none of them are completed yet and won’t be for a while (these things take much time) then I am not even 80 percent where some on this forum are, however there are a lot more where I was a year ago (about to do a development, would like to do a development etc) and I guess I was one of the people who moved past wanting to and hadn’t to one of the people that ‘did something about it’.

    So although I can’t tell you I am a legend and I made so much money (yet) the reason that I expect I will is:

    1) I bought land in an undervalued area which was also growing, by the sea, good climate etc. This purchase was validated by the fact that it doubled in value in the first six months and probably tripled by now.

    2) Make sure of your market by talking to valuers, agents, and rental agents.

    3) Make sure there is not a glut of what you are developing (be that houses, flats, sections) -make sure there is demand and that demand is expected to continue (something happening in the area to attract or cause growth)

    4)Don’t do too big a deal the first time so that you learn the process without too much risk

    5) have insurances, structures, and so forth in place

    6) Use expert, i.e. surveyers, valuers, master builders, architects, people with a track record, experienced project managers if you lack the skills

    7) Have someone to be accountable to with the project – to bounce and test theories with – this could be an accountant, business partner, mentor, or more experienced developer

    8) don’t be in a rush because anything that is supposed to take ten days will take 3 weeks, anything that is supposed to take 3 months will take 6, etc etc!

    9) If building make sure your prices are fixed and can not go up on you ‘after the fact’ – change the contract or insert clauses to suit if need be

    10) make sure your development fits in with the surrounding area, i.e. no use building too cheap in a fancy street, or too flash in a crummy street

    11) if you can make your development cashflow positive (i.e. eventual rents will cover the borrowing on the money you have in the deal) then all the better, because in case you can not sell the property at a desired price, you can hold it as a rental property

    12) Have a margin of profit of 40 percent including your contingencies, and then even if it’s only half that you will be doing as well as most developers

    13) you can market your development for sale even before title or in some cases before even DA approval is through, if onselling it

    14) developers have different tax implications to buy and hold investors, so make sure you allow for this

    15)Bigger developments are often better to do as a team with specifically skilled people

    16)Have plans A-G (at least) or different options at every stage to cover for every contingency.

    17) Know that you can stop where you are and sell at a profit at any stage in the process.

    18) spend the money on a feasibility report

    19) network, network, network

    20) have loads of options. for example with our bigger deal, we are looking at a) onselling with DA approval for lots b) which is the optimum lot size for the market c) partnering with a building developer d) offering our own house and land packages e) completing the subdivision process and selling the sites to the public f) doing absolutely nothing apart from holding the land for a year for capital gains (well that’s not developing, but it is a contingency plan, which is a bit part of developing!

    21) Allow for what if’s. What if the council don’t approve the plans. Who pays for the changes? If the builder goes bankrupt what happens? If there are delays how does it affect things. Are your prices fixed? What if you find a defect in the land along the track which is costly to fix? What say the council change the laws on you suddenly to expose problems your land didn’t have before the law change?

    22) How exposed are you if anything goes wrong? The idea is ‘not exposed’, meaning, you wouldn’t totally go down in smoke if your development didn’t work out or lost you money.

    that’s all I can think of for now
    cheers-
    Mini

    Profile photo of wealth4life.comwealth4life.com
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    @wealth4life.com
    Join Date: 2003
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    Hi Mini where r some of your projects, i would love to see some of your work … resi

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